Site Mobile Navigation

Iraq Private Sector Falters; Rolls of Government Soar

BAGHDAD — Hampered by years of violence, a decimated infrastructure, a lack of foreign investors and a flood of imports that undercut local businesses, Iraq’s private sector, particularly its small non-oil economy, has so far failed to flourish as its American patrons had hoped.

In its absence, the Iraqi government has been sustaining the economy the way it always has: by putting citizens on its payroll. Since 2005, according to federal budgets, the number of government employees has nearly doubled, to 2.3 million from 1.2 million.

The impetus is not only economic: In exchange for abandoning the insurgency that plunged the nation into civil war, many of the 100,000 members of civilian patrols known broadly as the Awakening movement have been promised jobs in the security forces or in reconstruction, though many Sunni Muslim members complain it is not happening quickly enough.

But this growth has not come without problems. Already, a huge wage increase to government workers that was instituted — but then suspended because of fears that it was pushing up inflation — has underscored the difficulties of being far and away the largest employer in an unstable country.

In 2006, 31 percent of Iraq’s labor force was working in the public sector, according to the agency for statistics in the Ministry of Planning. The agency expects that figure to reach 35 percent this year, about 5 percentage points short of where the C.I.A. estimated it to be on the eve of the 2003 invasion.

This figure is not atypical for the region, but it hardly indicates the free market state initially envisioned by the United States-led Coalition Provisional Authority, which pushed for full and rapid privatization in its first few months.

“For all the talk about the private sector taking off in Iraq, it didn’t materialize,” said Haider al-Abbadi, who is on the parliamentary economic committee, and is disappointed by Iraq’s reversion to its old statist habits. “People would say, ‘Well, these people are poor; we need to help them.’ It’s true, but we didn’t create jobs. I think this is a huge problem.”

While some ministries need to keep growing — the Defense and Interior Ministries, which each include Iraqi security forces, account for about a third of government employees — others have tried to curtail hiring.

“I think that the government itself has been concerned about keeping a cap on the number of people that can join the public sector,” said Jorge Araujo, the lead economist for Iraq at the World Bank.

But to combat unemployment, a factor contributing to much of Iraq’s violence, there are few other options right now. Nothing sent recent graduates and out-of-work Iraqis scrambling to land civil service jobs more than the hefty raises that went into effect in June.

Photo

Workers leaving the Diyala State Company for Electrical Industries in Baquba recently. Iraq has been sustaining its economy by putting people on its payroll.Credit
Ashley Gilbertson for The New York Times

Given how large a proportion of the country’s population is on the government payroll, this series of wage increases, like the two that came before, in 2003 and 2007, was essentially a form of widespread economic relief. The salaries of many Iraqis were more than doubled.

Some economic advisers and members of Parliament worried that a raise for government workers could be a nightmare for others when a sudden flood of cash poured into the market. They argued that the raises should be phased in gradually to prevent a spike in inflation, which, at around 14 percent — a sea change from two years ago, when it neared 70 percent — has largely been tamed by a disciplined fiscal policy, robust oil revenues and an influx of low-cost imports.

But Iraqi citizens were desperate for the money. And lawmakers were thinking about elections.

“When people see a sudden pay raise, they will spend,” said Mr. Abbadi, who supported the phased approach. “To be frank, we have not been fair to the poorer people, or people without jobs, or people not on the payroll of the government.”

For a short time, the raises were a windfall for a handful of privately owned businesses — like the gold shops and car dealerships that cater to the doctors, lawyers, engineers and teachers of the public sector.

“This is the best season I’ve ever had,” said Muhammed Aziz, 36, sitting behind the counter of his bustling gold shop in the Kadhimiya neighborhood.

But even government employees were wary. “When our salary was increased, it came along with rising prices in the market,” Tamathaer Hameed, 27, a professor of Arabic who was browsing for rings in Mr. Aziz’s gold shop, said of the last round of wage hikes. “It’s an economic circle.”

Ms. Hameed’s worries were well founded. Under pressure from the International Monetary Fund, the Ministry of Finance announced recently that it would suspend the raises from September until the end of the year. The move was applauded by those who favored a cautious approach, but it left hundreds of thousands scrambling.

An error has occurred. Please try again later.

You are already subscribed to this email.

“I found myself with a huge problem,” said Dr. Ra’ad Jassim, 45, a professor of communications at a state-owned university. Dr. Jassim, a father of four, bought a car with his new salary and was not worried about making the payments — at least not until he heard of the suspension of raises.

“I tried to return this car to the original owner, but he refused,” Dr. Jassim said. “I think I will go to work as a taxi driver.”

The long-term answer to Iraq’s economic problems, several lawmakers said, is a thriving free-market alternative.

There has been some success: new business registration is up nearly 14 percent this year. But the process is slow.

Photo

Abdul Aama in his Baghdad shoe factory, in which he once employed 30 people. Now he has only one employee.Credit
Ashley Gilbertson for The New York Times

“The private sector does not exist now,” said Hasan al-Shammari, the head of the Fadhila Party in Parliament, “because there is no infrastructure.”

The Iraqi government has set aside money to help small businesses secure credit. It has also begun pushing for the creation of private banks, has taken steps toward privatizing some state-owned enterprises and has aggressively encouraged investment (the booming telecommunications industry is one bright spot).

The 2008 budget even includes an item that enables the government to cover half the salary, for two years, of a civil servant who transfers to the private sector.

But for most Iraqis, the challenge is getting on the government payroll, not getting off, and they are going at it the Iraqi way — leaning on friends and relatives with connections and scraping up money for the inevitable bribe, typically a month’s salary.

Like so much else in Iraq, getting a job is complicated by politics and sectarianism. While the minority Sunni Muslims run a handful of ministries, they are all but barred from some others. The policy of de-Baathification, aimed at rooting out loyalists to Saddam Hussein after the American-led invasion, resulted in a de facto purge of high-ranking Sunni bureaucrats, a purge that continued informally in certain offices that were permeated by Shiite militias.

“If you go to the Ministry of Trade, for example, you can hardly find any Sunnis,” said Saleh al-Mutlaq, a Sunni member of Parliament. “Ministry of Agriculture, they cannot go there.”

Shiites applying to Shiite-controlled ministries — even for jobs as cafeteria workers — are often required to prove connections, or loyalty, to the right political party.

Older Iraqis, those who flourished in the free market while civil service employees languished under Mr. Hussein’s government, are unaccustomed to the new math.

Abdul Aama, 65, once owned a shoe factory and shop that employed 30 workers. Now he employs only one. On a recent weekday morning, the shop, off the once-teeming Rashid Street downtown, now largely blocked by blast walls, was empty. Few of the shoes on display were Iraqi-made.

“After the fall of the regime all the factories closed,” Mr. Aama said. Cheap Chinese imports began pouring into the market — a boon to the poor, but a bane to the local shoe industry — and the unreliable electricity did the rest.

Asked if he had applied for one of the government’s new loans, Mr. Aama said it was pointless.

“If we went to the directorate to apply for loans, they would only give them to friends, relatives or people who are bribing them,” Mr. Aama said.

“Even if I got the loan, what would I do with it?” he asked. “I would eat it.”